May/June 2021 Issue

Process Automation And Standardization, Part Three

My previous two articles covered the importance of process design and designing a new purchase lending process that starts at the very beginning of the mortgage origination cycle.  This is when the first encounter with prospective applicants occurs.

The reason for these recommendations is simple.  The mortgage market is changing. We are transitioning from a refinance lending to a purchase market..  We know predictable things happen every time this occurs, such as lending volume tapering off.  New things are taking place, too.  On the supply side, homes available for sale are at their lowest levels in history.  On the demand side are the 87 million millennials, whose pace of household formation and demand for homeownership is increasing.  This is the classic supply vs. demand challenge.  With less supply to meet growing demand, finding a home, is going to take longer than in past markets and slow down the lending process.

Despite the changes happening in the market, there are ways to take control of your lending process, especially at the top of the funnel.  The lending challenge, as I see it, is twofold.  First, you should ensure applicants qualify today and tomorrow.  It is important to keep tomorrow in focus because tomorrow, rather than today, is when they will find their home.  Second, keep applicants engaged with you as their lending consultant until they find a home.  That keeps them from being lured away by competitors with better rates and may help them qualify for larger mortgages, which pays off in benefits for lenders:  additional commission income, higher productivity and profitability ,  and the opportunity to build a life-time relationship and referrals with the borrower.  Where a borrower has their mortgage often determines where they look next for their next loan or other financial service needs.  

One straightforward and helpful way to tackle both challenges is to focus on your applicant’s mortgage credit score.  Start with credit score review and optimization.  Credit is too often viewed in one dimension – it’s either acceptable or it’s not.  Rather than simply review the mid-score as it appears and decide if the applicant qualifies, take the next step to keep a borrower credit-ready, get the borrower to the closing table, and build that all-important relationship

The next step adds a dimensionality to credit that keeps borrowers credit-ready.   Credit-readiness may be a new concept.  Rather than accept what a credit score is, credit-readiness helps borrowers understand their credit score and what their score could be.  Then, give them a plan to reach that potential. Don’t stop there. Remember, borrowers have to not only qualify today, but continue to qualify over the period of time it may take to find a home in today’s housing market. Once applicants qualify, simulate how their score will change over time to help them avoid common credit pitfalls and remain in their credit score category.  Using widely available technology, loan officers can project an applicant’s credit score as far as twenty-four months into the future.  They can also simulate credit actions to improve their client’s credit scores.  Qualify today.  Qualify tomorrow.  Most importantly, qualify on that special day when your borrower finds their new home.

Take a similar approach for those borrowers who do not qualify today.   Starting with today’s credit mid-score, you can simulate credit actions that home buyers can take to reach their score potential and chart a path to qualification.  This is more than credit score improvement.  It is a path to homeownership for these borrowers who might otherwise not close.  Every applicant matters, especially in lower-volume markets.  Taking a few extra minutes to work with borrowers on their credit scores makes them a homeowner, and you a trusted advisor.

The second lending challenge is to keep prospective applicants engaged throughout their home buying journey.  Use this credit score simulation and its resulting action plans as a reason for meaningful follow-up while borrowers are looking for their homes.  This provides a reason to check in and make sure they have taken the suggested credit actions as a result of the simulation activity. Purposeful follow-up decreases early lead fall-out and makes sure both lender and borrower are ready when it comes time to make an offer.

We will all be navigating this new, rather unusual purchase market for at least the next year or two.  The MBA’s March Mortgage Forecast shows the cut-over taking strong hold by the fourth quarter of this year, with an extremely competitive market continuing through 2023.   My company, CreditXpert, has been helping lenders keep their borrowers credit-ready for more than 20 years. We believe, given the way market dynamics are shaping up, that credit-readiness has never been more important.

Want to talk more about keeping borrowers credit-ready and processes that systematize this new way of thinking? Contact me at [email protected].